Market Briefing For Thursday, July 16

Twitter's 'hackathon', revealed this evening, is but the frosting on the cake of what should be a grand rotation at first. With some focus on cyber-security stocks, which have an issue with their technologies often eclipsed by others, this remains a stock market, that in the most basic terms, should be on the cusp of another shakeout.

Executive summary:

• The out-performance of Nasdaq and 'super-caps' has been the hallmark of this market for months, in an upward move we nailed from the March low.

• While we resisted bearish temptations, as too many were selling-short just on superficial negativity, we also suggest prospects for correction are enhanced by virtue of finally getting some broadening to the rally (the last two small shakes had better participation just before reversing from up-to-down).

• Announcement of a vaccine was expected to thrust the market higher from any level, in this case it's a high level which at least increases odds for a short-term exhaustion prospect.

• The market's reaction to Moderna's (MRNA) Phase 2 Trial was expected, and holds so far, however it's not necessarily the panacea some think, and that was hinted at a while back, when initial trial results leaked-out.

• What is needed are 'more' vaccines and especially therapeutic drugs; many are working in this realm, especially Merck (MRK), Gilead (GILD) and even Pfizer (PFE), a potpourri of small biotechs are also in this race for both vaccines, drugs, therapies (plasma is an example, with perhaps limited duration protection) and insanely volatile.

• Volatility has almost always been characteristic in biotech's; which makes it very risky for investors to chase or play small stocks hyped online or in media;

• The behavior of Sorrento Therapeutics (SRNE) is one example (where we played a bit from the +/- 4 area; while warning of hyperbole by the CEO among others), sure, if one of their myriad of products succeeds it zooms, otherwise it's just a bet.

• Some small stocks actually have ongoing business growth and while not yet in a zooming status, might have a bit less volatility, since there's measurable value.

• In the wake of the Twitter (TWTR) hack (a crypto-scam seemed improbable as it's sort of old news), on prominent people and firms accounts, there's more worry than frantic effort to figure-out how '2 factor authentication' accounts were hacked.

• Implications given current COVID-19 necessitated digital work and educational as well as increasingly-complex distant business (work-at-home is just part of this) backdrop, will emphasize the urgency of tackling security concerns, most such stocks are either expensive or their technologies were eclipsed by others.

• Tonight we continue dealing with an exponentially-expanding COVID-19 situation in much of the nation, with more and more states 'trying' to isolate from others, but as New Jersey's Governor Murphy noted, it's impossible to seal borders.

• Personal responsibility is what comes-into-play, and we are optimistic about a 'useable' vaccine (even therapeutic drug) this year, but we're not there as yet.

• Speculation increases as to the 'source' of the virus, the irony of WHO going to China and before they get there stating it didn't come from Wuhan's lab is sort of laughable if it wasn't pathetic, as all it says is they won't 'really' investigate.

• Collision of COVID-19 into seasonal influenza is a huge concern, and that is why it's indeed responsible for Dr. Fauci and (CDC Director) and Dr. Redfield to express serious alarm of the possible worst 'Public Health' situation in US history since the Spanish Flu around 1918.

• As to the rift between Dr. Navarro (not an MD but did correctly try warning early in the year as often mentioned) and Dr. Fauci, they do need to patch things up, but the truth is they are both correct in various ways, and perhaps Navarro is a bit nonplussed that Trump will not sanction Chinese leaders at this time.

• Too many are seemingly-numbed by the COVID-19 catastrophe mortality numbers, as protests against responsibility attest (even markets reflect this, with excess optimism, although we expected that, on the first promising Phase 2 vaccine).

• Many stocks that rebounded on the basis of celebrating 'one' vaccine (we're of course pleased too, but it's not cause for celebration) are ahead of themselves.

• The re-opening will rapidly morph to a stay-at-home order in some states, and that's regardless of the economic impact or objection from Washington, just because there's no other way to offset misjudgements made earlier.

• I'm in Florida, among the hardest hit states, but I hear from members in Texas, Arizona and California that are in similar situations, but now most non-military nurses available in the nation are deployed, leaving inadequate personnel for Florida (they will likely send the military), as even that may be inadequate.

• That includes the snap-backs in tourism stocks, some will be challenged to stay in-business, should the worst-case happen this Fall (hopefully won't; but we are not at the point-of-the-sphere in leading the fight, even as we were close to that point in assessing what was coming early-on this year).

• On that score, 'unless' we get additional funding and unemployment insurance extensions (because for most that's about to expire), consumer spending also will dry-up for a large segment of the population.

• Besides more business failure since even with partial re-opening, few are willing to brave risks of mingling; and it's prohibited in so many states now.

• The business risk is reflected by higher bank loan-loss reserves, and a candid realization that there's no flexibility on the part of the Fed for a long time.

• Oil firmed a bit, more due to rising US demand (road trips?) than the OPEC deal which allows 'slightly' higher production as demand (from China too) rises.

• The U.S. market, election year or not, will be challenged to do more than hold a trading range, with the top area continuing to be about where we are, so there's really little change in our view that following this thrust it gets more defensive.

In-sum: To say 'discretion remains the better part of valor' is an understatement, at the same time we're focused primarily on the 'romps' by S&P and NASDAQ / NDX, while realizing an 'infrastructure' package (or hopes for one) helps some Industrial stocks of a basic nature that have been relatively dormant. That's a hope felt by the Dow Industrials, but even that is likely premature on-top just-realized moves.